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Report
from Europe
and the UK
Confidence in EU market low
The on-going financial crises across Europe and the
housing market bust in several key markets including
Spain and the UK have dented confidence among
European hardwood buyers. While hardwoods remain a
fashionable product in the EU, valued for their quality,
aesthetic appeal and natural warmth, overall levels of
consumption are falling as the market has shrunk, and as
more buyers look for ways to cut costs. Trade contacts
indicate that demand did not pick up in September as is
usual after the summer vacation period. Meanwhile onground
sales prices for headline tropical species such as
sapele and meranti are below replacement cost as
importers’ main concerns have been to off-load existing
stocks and maintain cash flow rather than to consider the
possibility of future short falls.
Signs are that the Spanish market is particularly weak at
present. Stocks are relatively high and manufacturing
activity is well down. The construction boom that fuelled
strong growth in hardwood demand in previous years is
now well and truly over. Unlike their Italian counter-parts,
joinery manufacturers in the country did little to develop
export markets during the boom period so the dramatic
downturn in domestic demand has felt particularly painful.
Efforts are now being made to diversify markets in other
European countries and the Middle East, but this is a
struggle as manufacturers everywhere are looking for new
buyers.
The UK has also suffered a dramatic downturn in the
housing market as credit for home buyers has dried up.
The slowdown in joinery activity has been less dramatic in
the UK than in Spain, with some contacts suggesting that
this sector continues to absorb reasonable volumes.
However there is serious concern over apparent lack of
new orders emerging in the joinery sector and prospects
for consumption going forward into the New Year.
Importers are generally keeping stocks low, only
purchasing in small volumes as and when required, and
keeping a very close eye on price and specification. The
end of Ireland’s construction boom is also being felt in
slow demand for hardwoods.
Reports from Germany and the Benelux countries also
suggest that the slowdown in consumption has left
importers holding excess inventories in the main
commodity grades of tropical hardwood with little need to
place new orders.
Second quarter results of DLH, a leading Denmark-based
hardwood trading company with sales operations in
several European countries, provide one indication of the
recent difficult trading conditions in Europe. Company
turnover for the period was down 6.5% on the same period
in 2007. This follows a 5.7% decline in the first quarter of
the year. The fall in turnover was due to a combination of
lower sales and price reductions, particularly for African
timbers. In addition, business in Brazilian timbers was
down due to the relative strength of the Real and resulting
loss of competitiveness. DLH has cut production at its
Brazilian facilities in response. Overall the company now
expects turnover of DKK5.3 billion in 2008, down from
5.7 billion in 2007. Nevertheless DLH sales to some
markets have increased this year, including to Eastern
Europe and the Far and Middle East.
EU illegal logging legislation continues to be delayed
There continue to be delays to the release of the European
Commission Communication containing proposals for EUwide
legislation designed to prevent imports of illegal
wood products. The Communication was originally
scheduled for April 2008 with a draft parliamentary bill to
be prepared by May 2008. The Communication is now
scheduled to be considered by the European Commission
on 15 October. But even if approved then, it is now
doubtful that the proposed legislation can be brought into
force by the European Parliament before the end of the
legislative period in mid 2009.
According to the European Timber Trade Federation
(FEBO), quoted in the German trade journal EUWID, the
long delay is due to ‘internal voting difficulties in a
number of the Commission’s departments’. However,
contacts close to the EC suggest that the delay also reflects
dissatisfaction within sections of the European trade and
industry for the ‘due diligence’ legislative proposal
currently on the table. This proposal – as outlined by the
European Commission at a Chatham House meeting in
London in July – is that EU wood trading companies
would be under a legal obligation to implement effective
management systems to reduce the risk of trade in illegal
wood. The aim would not be for the regulatory authorities
to capture or monitor individual shipments to ensure they
are legal. Instead, companies would be allowed to use risk
assessment as part of the due diligence process, so there
would be no necessity for traceability and certification for
imported wood supplies from countries considered low
risk from the perspective of illegal wood supply. There
would also be formal recognition for legality licenses
issued under the terms of FLEGT Voluntary Partnership
Agreements (VPAs) in the legislation. For product for
which these are available, EU companies would need to
take no further action to demonstrate due diligence.
However there seems to be a fear among sections of the
EU trade and industry that such legislation would add
unacceptable costs that can be ill afforded at a time of
mounting economic problems. Certain industry elements
are believed to have been pushing for the existing proposal
to be dropped in favor of more emphasis on the existing
VPA process. Others have been suggesting that more
thought should be given to introduction of legislation
closer to the US Lacey Act which, they suggest, was
dismissed out of hand too early in the process.
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